With three months still to go before the big event, superannuation lobby groups are getting in early with their 2014 federal budget wish lists, where the dominant theme has been streamlining and improving the fairness of contribution rules.

While most acknowledge any requests that might involve the government expanding the concessional landscape will be difficult to win given the current stretched economic times, that’s not stopping them from seeking reforms based on arguments for greater fairness and reduced complexity.

One of the major reforms being sought on these grounds is changes to the superannuation 10 per cent rule that reduces the scope to utilise super for those with mixed income sources that include part-time structured employment and self-employment.

More Australians are working part-time or have more than one job and many want to contribute to super, says
Graeme Colley
, the director of technical and professional standards at the SMSF Professionals’ Association of Australia (SPAA).

Some are keen to contribute as much they can in the most tax-effective way, given part-time employment can often occur when they may be transitioning to retirement or focusing on maximising savings. However, many find the 10 per cent rule restricts their right to access the same tax concessions as those who work full-time, either for one employer or in self-employment.

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For various reasons, they can’t contribute the up to $25,000 in tax concessional contribution that anyone under age 60 can utilise in the 2013-14 financial year, let alone the $35,000 that those who have reached 60 can contribute. One of these reasons is the rule that states where someone earns 10 per cent or more of their total assessable income for the year as an employee, they can’t make additional personal tax deductible contributions to super from other income sources where their employer has made 9.25 per cent compulsory super contributions on their behalf and is unwilling to allow salary sacrifice contributions. This means their tax concessional super contribution entitlement is limited to the compulsory amount contributed on the employment income, even though they may earn significant income from self-employment.

This can leave them well short of the either $25,000 or $35,000 tax concessional contribution limits.

Lawyer
Daniel Butler
, of DBA Lawyers, who often represents the Taxation Institute of Australia as a lobbyist, says if there is one super contribution rule that should be changed, it’s the 10 per cent rule.

It is a rule, he says, that no longer has a sound policy basis, given the changes to the super rules since 2007.

The rule should be replaced with an entitlement to allow employees in part-time jobs and those who are self-employed to take full advantage of their age-related concessional contribution limit despite having some employer super support.

At present, an employee who earns more than 10 per cent of their assessable income from employee activities can find themselves limited to the minimum super guarantee level of support that is 9.25 per cent. This can result in a significant unused tax concessional amount with typically no incentive to make further super contributions as no deduction exists.

As an example, if someone under 60 earns $60,000 as an employee where their employer contributes only the 9.25 per cent compulsory super amount, the $5500 of super based on their salary is $19,450 short of their contribution limit

Butler says there are often a number of self-employed people who also lose the benefit of the tax concessional entitlement by taking up part-time employment.

A doctor who takes on a visiting medical officer role at a hospital can easily lose their ability to claim tax deductible super contributions from self-employment where they are making personal super contributions into a self-managed super fund if they exceed the 10 per cent rule.

This makes it harder for hospitals and employers to gain valuable input from the self-employed.

The 10 per cent rule also costs a considerable amount to administer and requires several forms to be completed which do not add value to retirement savings.

Getting rid of the 10 per cent rule is also the wish of the Institute of Chartered Accountants of Australia in its 2014 budget submission, which mainly focuses on employers who don’t allow employees to sacrifice salary as super contributions.

Allowing salary sacrifice is often seen as a solution to the problems raised by the 10 per cent rule.

According to the ICAA submission, Australians trying to save for their retirement should not be deprived of super concessions because they work for an employer who does not allow them to salary sacrifice into super.

Permitting personal concessional contributions to “top up" employer contributions would encourage people of all ages and wage levels to provide more for their retirement. It would also ease the administrative burden on small businesses, reckons the ICAA, as they would no longer feel compelled to offer employees salary sacrifice arrangements.

The responsibility for decisions about super contributions would be taken away from employers and put back in the hands of individuals.

Other benefits that could flow from a change that allows personal super top-up contributions up to the contribution limit is clearing up various anomalies associated with salary sacrifice arrangements. Employers who offer salary sacrifice arrangements to allow employees to increase their super contributions are able to use their employee’s salary sacrificed amounts to satisfy their obligations to pay the 9.25 per cent compulsory amount. This discourages employees from making additional contributions to increase retirement savings as they may be forgoing their entitlement to the 9.25 per cent compulsory contributions.